Credit Score 101 for Home Equity Loans: What You Need to Know

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ByChristopher Boston
Edited byVictoria Copans

Updated: January 30, 2024

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When you're considering a home equity loan, understanding your credit score is crucial since it plays a significant role in not only getting approved but also in determining the terms and rates you'll receive. Generally, lenders require a good credit score or better (at least 670) for home equity loans. You may still be able to get a loan with a lower score, but you will face less favorable terms.


What Is a Home Equity Loan?

A home equity loan is a loan guaranteed by your home. If you can't repay the loan, the lender could potentially take it. However, since your home serves as collateral, lenders are often more willing to offer larger amounts and sometimes at better rates compared to unsecured loans. Home equity loans usually have fixed rates. Your monthly payments remain consistent throughout the life of the loan, making budgeting easier. It might also be a good choice for large, one-time expenses since you receive the loan amount as a lump sum.

Home equity loans are popular for a variety of purposes:


A home equity loan is a versatile financial tool. It usually comes with a set repayment plan, often spanning several years, which you need to adhere to in order to avoid risking your home.

Credit Score Requirements for Home Equity Loans

When it comes to home equity loans, lenders typically look for credit scores in the good to excellent range, between 670 and 850. However, there's no strict cutoff point — the minimum credit score for a home equity loan can differ from one lender to another. Some might accept lower scores with compensating factors, while others stick to higher requirements.

Taking the time to check and understand your credit score before applying is a smart move. It lets you gauge where you stand and improve your score if needed. This, in turn, helps you set realistic expectations and potentially find more favorable loan terms, saving you money and stress.

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A credit score is a number that reflects your financial reliability, showing how well you manage your money and debts. Credit scores are calculated using these key factors:

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)

Scores typically range from 300 to 850. The higher your score, the more financially trustworthy you're seen by lenders. As of the third quarter of 2023, Experian reported that the average credit score in the U.S. was 715. That sits comfortably in the range considered good, demonstrating a generally healthy credit standing among Americans.

How Credit Scores Affect Home Equity Loans

Understanding the influence of your credit score on a home equity loan is key even before you start the application process. It helps you set realistic expectations and prepare for potential challenges.

Here are several ways your credit score can affect your home equity loan:

  • Interest Rate: A higher credit score can help you secure a lower interest rate, reducing the amount you pay over the loan's life. For instance, a score above 740 typically gets you the best rates, while a lower score could mean paying more interest.

  • Loan Terms: Your credit score affects the loan's length and flexibility. Better scores often lead to more favorable terms, like longer repayment periods or more flexible conditions.

  • Approval Timeline: A good credit score can speed up the approval process. Lenders are more confident in your ability to repay, leading to quicker loan processing.

  • Loan Costs: A better credit score typically results in lower overall loan costs. This includes potential reductions in certain closing costs such as application fees.

  • Borrowing Limit: Your credit score can influence how much you can borrow. A strong credit score often means access to a higher loan amount.

A better credit score opens up more favorable options, from interest rates to borrowing limits. It's not just about getting approved — it's about securing the best possible deal for your financial future.

Getting a Home Equity Loan With Bad Credit

Getting a home equity loan with bad credit can be challenging, but it's not impossible. Lenders consider various factors beyond your credit score to assess your loan application. These factors can sometimes offset a lower credit score:

  • Income: Stable and sufficient income reassures lenders that you have the means to repay the loan. A high income can be a strong compensating factor if your credit score is low.

  • Debt-to-Income Ratio (DTI): This measures your monthly debt against your income. A lower DTI indicates that you're not overly burdened by debt, which can help balance a lower credit score.

  • Home Equity: The more equity you have in your home, the less risky the loan is for the lender. A significant amount of equity can sometimes offset a lower credit score.

While a lower credit score can make obtaining a home equity loan more challenging, leveraging these other factors can improve your chances. Consider talking with lenders about your specific situation — they can provide insights into their requirements and what options might be available to you. Remember, each lender may have different criteria, so exploring multiple options could be beneficial.

How to Improve Your Credit Score

A strong credit score can lead to a much smoother home equity loan experience. If your credit isn’t where you want it to be, consider taking steps to improve it before applying for a loan. Enhancing your credit score can open up better loan options and terms.

Here’s what you can do:


Check Your Credit Report for Errors

Incorrect information on your credit report can negatively impact your score. Regularly reviewing and correcting any errors is a crucial step in improving your credit.


Pay Bills on Time

Consistent, timely bill payments are essential as they demonstrate your reliability in managing debts, positively affecting your credit score.


Decrease Credit Card Balances

Working on your credit utilization ratio – the amount of credit you're using compared to your limit — can boost your score. Aim to keep it under 30%.


Avoid Opening New Credit Accounts

Each new application can temporarily lower your credit score due to hard inquiries. Limiting new credit requests helps maintain your current score.

Improving your credit score is a journey, not a sprint. These steps can help you gradually build a stronger credit profile. Improving bad credit takes time, but the effort is worth it for the financial opportunities it unlocks.

Alternatives to Home Equity Loans

Sometimes, pursuing a home equity loan might not be the best choice, especially if your credit score is low or you're concerned about using your home as collateral. Fortunately, there are other financing options available that can suit different needs and credit situations. Each has advantages and disadvantages, which you can find in our table below.


Before choosing an alternative, it's best to assess your financial situation and goals. Remember, the best choice depends on your personal financial circumstances and what you're comfortable with in terms of risk and repayment.

FAQ on Credit Score Requirements for Home Equity Loans

Whether you're curious about how your score affects loan terms or looking for ways to improve your credit, these questions cover a broad range of topics to help you gain a deeper understanding about the role of credit scores in home equity loans and make informed decisions.

A home equity loan lets you borrow against your home’s equity (the value of your home minus any outstanding mortgage balance). It's given as a lump sum and repaid over a set period, typically with a fixed interest rate. Your home serves as collateral, meaning if you can't repay, the lender may take your home.

While the exact number can vary by lender, generally, a credit score in the good range (around 670 to 739 according to FICO) is required. Some lenders may accept lower scores, but this often comes with higher interest rates or stricter loan terms.

Yes, credit score requirements can vary significantly between lenders. Some may have more lenient criteria, while others might require higher scores for better terms. It's important to shop around and compare offers.

Your credit score can affect the interest rate you'll receive considerably. A higher score can unlock lower interest rates, reducing the overall cost of the loan. Conversely, a lower score might mean higher rates and more expensive borrowing.

Paying down significant debts quickly, especially credit card balances, and correcting any errors on your credit report can lead to relatively fast improvements in your credit score.

The time it takes to repair a credit score varies depending on the reasons it's low. Simple fixes like correcting errors can have quick effects, while more significant issues like a history of late payments may take longer to overcome.

Not necessarily. While a bad credit score can make it harder to get a home equity loan, some lenders may still approve your application, potentially with higher interest rates or additional requirements.

Lenders also look at your debt-to-income ratio, employment history, income stability and the amount of equity you have in your home. These factors can sometimes offset a lower credit score.

It's possible, though challenging. Lenders may be more cautious, but if other aspects of your financial profile are strong, such as a low debt-to-income ratio or substantial home equity, it could balance out recent credit issues.

Regularly checking your credit score in the months leading up to your application can be beneficial. It allows you to track improvements, identify and fix errors, and understand what loan terms you might qualify for based on your current score.

About Christopher Boston

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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.